Land Tax Can’t be passed on to tenants
The Age today ramps up the property lobby’s annual war against contributing to society in Land tax hike to hit tenants
Knight Frank managing director Paul Burns said landlords had been complaining about their 2009 land tax bills, and agreed that tenants on net leases would be the first to cop the extra charges. But he said competition for tenants would eventually see landlords absorb the cost.
“New tenants come in and look at net rent, plus outgoings. Ultimately, it will pass on to the property owner.
Why shouldn’t landlords contribute something to government for the massive capital gains they have received over the last few years?
We agree that there should be yearly land valuations to avoid these biennial spats by the property lobby. It’s also fairer and can’t be too difficult in an era of modern software such as google earth.
We support a higher flatter, land tax. This will fund the removal of payroll and stamp duty taxes. This is part of the move towards supporting the productive economy and deterring speculation. Higher land taxes should be encouraged to remove the incentive for land speculation, the pressure that has pushed us all into so much debt and delivered the GFC. Without speculation, housing will become a human right again. At present it is a speculative right.
However, the line that land tax will be passed on is contentious. Land taxes set at a decent rate can not be passed on. Why? Because land is in fixed supply, higher land taxes encourage property owners to use land more efficiently. Thus the junk room gets cleaned up and rented out, the huge backyard that is rarely used gets sold off or turned into something economic such as a small veggie garden. At present we have rafts of speculative vacancies hidden from the market.
Some believe that a Land Tax can be passed on. But this is only because it is so low. The higher the Land Tax, the less that can be passed on. As the property market reaches efficiency (ie all zoned land is used to it’s best use), fewer properties are withheld from the market. With more options to rent from, this puts downward pressure on rents. Thus the landlord has to pay his fair share for the capital gains accruing to his land.
We don’t see landlords complaining that they can now borrow more money from the bank to buy more land when their property is more valuable.
The current rise in ‘For Lease’ and ‘For Sale’ signage around the city hints that as the downturn in the market accelerates, those speculators withholding supply from the market in lieu of manufacturing capital gains are now trying to cash out. Without a Land Tax these properties would sit idle until the next property bubble takes off.
Thus society has some recourse with a land tax system at present. However, if the property lobby had their way and this ‘unfair’ tax was removed or further watered down, many of them would contribute nothing to society in tax and recessions would last longer. This is because land cannot be hidden in tax havens like so much of the tax system allows.
Over the next few months we will hear more calls to remove this tax. It is part of the usual lobbying efforts of the vested interests in the run up to the Victorian State Government budget. Read Gavin Putland’s excellent piece on holding charges and the media game.